Summary

"Hope value" was not a permissible element in valuations under the Leasehold Reform, Housing and Urban Development Act 1993 Sch.6 or Sch.13 and should not be included in the price payable for collective enfranchisement or lease extensions.

Facts

The freeholders (C and W) appealed against the decision of the Lands Tribunal that "hope value" should be included in the price payable for collective enfranchisement or lease extensions. The leaseholders (M and S) appealed against the tribunal's decision to reject "market evidence" in fixing the deferment rate. The appeals arose in joined cases from the determination of preliminary issues by the tribunal. The tribunal had had to consider the two preliminary issues in relation to lease extensions, collective enfranchisement and single houses. In relation to the issue of hope value the tribunal accepted that in principle hope value was identifiable as a separate element of value capable of valuation as such but had determined that under the detailed provisions of Sch.6 and Sch.13 to the 1993 Act hope value was excluded. In relation to the issue of deferment the tribunal found that the generic deferment rate used in calculating the value of a reversionary interest should be set at 4.75 per cent for houses and 5 per cent for flats, rather than the rate of 6 per cent previously set by the Leasehold Valuation Tribunal. The tribunal rejected the analysis of market evidence as a method of arriving at a deferment rate. The issues for determination before the instant court were (i) whether the deemed purchase price should be increased to take account of hope value or whether that was to be treated as reflected in the landlord's share of marriage value; and (ii) the proper deferment rate to be applied to vacant possession value. C and W submitted in relation to the hope value issue that (1) the tribunal had not applied the statutory wording so that the decision produced unfair and capricious results. W submitted that the interpretation conflicted with that indicated by ministers to parliament in 1993 and argued for hope value in respect only of non-participating tenants, in line with the distinction drawn between the two groups in the provisions relating to marriage value. C argued that hope value was a permissible element in relation to the interests of both participating and non-participating tenants. In relation to the issue of deferment M submitted that (2) the tribunal should not have rejected the credible market evidence and had erred in failing to use the best evidence.

Held

(1) The tribunal were correct in their conclusion that hope value was not a permissible element in the valuations under Sch.6 or Sch.13 to the 1993 Act. Hope value represented no more than the anticipation of future marriage value. The position in relation to hope value was clearest under Sch.13 in relation to lease extensions. A purposive intention was required. The intention was to exclude the tenant's bid for all time, that element being properly reflected in the marriage value allowance. The words "the tenant buying or seeking to buy" in para.3(2) of Sch.13 must be read as referring to the acquisition of any interest from the landlord. That was the natural reading of the paragraph in context and was also in line with the interpretation adopted by the tribunal in the first cases under the Leasehold Reform Act 1967. Under Sch.6, in relation to collective enfranchisement, the position was more complex because of the various parties involved. However the pattern of the provisions was similar to Sch.13 and one would expect the result to correspond. The effect of the changes seemed to have been to leave the position unchanged in respect of participating tenants, but to remove hope value for non-participating tenants. That must be taken as a matter of deliberate legislative policy. There was certainly no basis for the court to seek to redress the balance by bringing back hope value by a different interpretative route whether generally or, as W argued, only for non-participating tenants. In relation to single houses the tribunal had erred by having regard only to the exclusion of the tenant's overbid under s.9(1A) of the 1968 Act and ignoring the context of the section as a whole, including the specific provision for allocation of marriage value. There was no reason for the landlord to be paid both for the hope and for its fulfilment in the same transaction. (2) M could only succeed on the issue of deferment if it could establish an error of law in the tribunal's reasoning. If there had been useful market evidence before the tribunal they would have been wrong in law to ignore it. However if they were rationally satisfied that the evidence was of no practical assistance, they were not required to take it into account. The only issue therefore was whether that was a rational decision. M did not challenge the tribunal's conclusion that the assumed market was substantially different from the real market. Once that was accepted the degree of difference and its relevance to the valuation had to be a matter of judgment for the tribunal. Irrationality set a high hurdle. The tribunal's approach was in line with that of the majority of the experts and the tribunal had not made an error of law.

Appeals dismissed